The Bureau of Economic Analysis said that personal spending increased 0.2 percent in May, an improvement from being essentially flat in April. In particular, durable goods purchases rose 0.7 percent, rebounding from a decline of 0.9 percent the month before. Nondurable goods and service-sector spending increased by 0.2 percent and 0.1 percent, respectively. Overall, the data suggest that consumer spending has largely recovered from winter-related softness in December and January, with personal spending up 1.4 percent since January. On a year-over-year basis, consumers have spent 3.7 percent.
Meanwhile, personal income rose for the fifth consecutive month, up 0.4 percent in May. Through the first five months of 2014, personal incomes have grown 2.0 percent, with year-over-year growth of 3.5 percent. For manufacturers, total wages and salaries increased from $760.8 billion in April to $765.8 billion in May. Manufacturing wages and salaries have moved up from averages of $735.4 billion and $747.4 billion in 2012 and 2013, respectively.
With personal income growth outpacing spending, the savings rate edged up from 4.5 percent to 4.8 percent. This was the highest level since September, and a definite improvement from March’s 4.2 percent pace.
The other closely-watched aspect of this report was the personal consumption expenditure (PCE) deflator, a widely used measure of pricing pressures in the economy. In fact, it is the measure that the Federal Reserve prefers to use when it assesses inflationary tendencies. As we have seen in other indicators, the PCE deflator reflects consumer prices that are rising, with the annual pace rising from 0.8 percent in February to 1.6 percent in April to 1.8 percent in May. Rising food and energy costs were the largest factors in this recent run-up, with monthly increases of 0.6 percent and 0.8 percent, respectively, in May.
Core inflation, which excludes food and energy costs, have grown 1.5 percent over the past 12 months, up from 1.1 percent in February. This suggests that pricing pressures remain below the Fed’s 2 percent target. Yet, it is something that the Fed and other analysts will continue to watch in the coming months.
Chad Moutray is the chief economist, National Association of Manufacturers.